Those involved in litigation who still think they can avoid having to consider mediation need to think again.

Just in case further reminders are needed, the Court of Appeal has issued another one - mediation must be given proper consideration. Anything less and cost penalties may well follow.

Gowling WLG's Dispute Resolution experts take a look at the decision in Thakkar & Another v Patel & Another (2017) and explain what the outcome could mean for you.

Background

The claimants owned a building that was leased to the defendants and used as a school. The property was vandalised by thieves and suffered from water ingress and flooding as a result. This meant the building could not be used as a school for a period of time.

The lease subsequently came to an end and the claimants made a claim for dilapidations in the sum of £208,000. The defendants counter-claimed for the rent they said they should not have had to pay while the property was unfit for habitation, which came to almost £42,000.

Both parties expressed a willingness to mediate in an attempt to resolve the matter. The claimants were proactive in making arrangements for a mediation and proposing possible mediators. The defendants on the other hand were very slow to respond and raised all kinds of difficulties with proposals made. No mediation took place.

First instance decision

Both parties had some success at trial, with a balance of just over £32,000 ordered to be paid by the defendants to the claimants.

Early on in the proceedings, the defendants had made a Part 36 offer to settle the claim and counterclaim by paying the claimants £30,000 plus costs. That offer was not accepted and was then withdrawn. Notwithstanding the withdrawal, the defendants argued that the claimants had failed to beat their offer and should therefore pay the defendants their costs from the end of the 21 day period.

The judge acknowledged that the defendants' offer of £30,000 had been 'well judged'. It did not, however, have CPR Part 36 consequences as the offer had been withdrawn. That was clear. The offer could still be relevant if the claimants should have accepted it within the 21 days, although the judge noted the claimants' argument that they were unable to properly assess the defendants' offer at that stage of the proceedings.

The judge then examined the parties' conduct in relation to mediation. He acknowledged that neither party had refused to engage in mediation, and neither party had ignored requests to consider the process. However the claimants had been more proactive. The defendants were unenthusiastic and had shown no flexibility when it came to agreeing mediation arrangements.

Some criticism lay with the claimants for effectively "closing down" the process instead of continuing to press the defendants to agree the arrangements for a mediation. However, the judge held that the reality was that it was the defendants who were "the less keen to participate".

He found that there were real prospects of settlement had the parties engaged in mediation. At one stage the claimants had been prepared to accept £40,000 in settlement of the matter and that was an indication of their willingness to negotiate.

The judge held that the defendants should pay 75% of the claimants' costs and the claimants should pay the costs of the defendants' counterclaim. The defendants appealed.

Court of Appeal decision

The Court of Appeal found that the judge at first instance had held that the claimants acted reasonably in not accepting the defendants' Part 36 offer before it was withdrawn. The claimants only had the pleadings at that stage, whereas the defendants knew what their supporting evidence was. The Court of Appeal was not willing to reverse that assessment.

On the mediation issue, the Court of Appeal also agreed with the findings of the lower court. The case was one that was suitable for mediation, in particular:

  • The dispute was a commercial one, it was purely about money;
  • The defendants had offered to pay £30,000 and the claimants had been willing to accept £40,000 (albeit not quite at the same time - nevertheless, potentially the 'real' gap between the parties was small);
  • The costs of the litigation were vastly greater than the sums in issue;
  • Bilateral negotiations between the parties had not been successful; and
  • A skilled mediator would very likely have helped the parties to reach a sensible settlement.

We have previously reported on the Court of Appeal case of PGF II SA v OMFS Company 1 Limited (2013), which held that as a general rule refusing to respond to requests for mediation would amount to unreasonable conduct meriting a costs sanction. That would be so even if a refusal to mediate might have been reasonable.

This case was different in that both parties had agreed to mediate and it involved a dispute where the prospects of a successful mediation were good. The unreasonable behaviour warranting costs sanctions in this case was the defendants dragging their feet and delaying agreeing to anything, until the claimants eventually lost confidence in the mediation process. If there is a case where mediation is obviously appropriate, both parties are required to "get on with it".

The Court of Appeal held that the vast majority of the costs of the proceedings would have been saved had there been a settlement when the matter was stayed for settlement discussions. While the decision to penalise the defendants in costs so severely was tough, it was not so tough as to warrant interference by them. The appeal was dismissed.

Mediation must be considered

This case acts as a reminder that all parties are required to give proper consideration to mediation. Avoiding mediation is not an option any more. Parties cannot ignore requests to mediate; they cannot refuse outright to engage in mediation; and they cannot pay lip service to an agreement to engage in mediation. If they do, costs penalties are likely to be imposed.

It is clear that when it comes to mediation, unreasonable behaviour will extend to a party agreeing to mediate and then dragging its feet to avoid a mediation actually taking place.